Political and Economic Practices in Ghana - Paper Example

After gaining independence from Britain, Ghanas economy languished for three decades. What factors contributed to this weak economic growth? What does the Ghana experience teach you about the connection between economic and political systems and economic growth?

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Ghanas slowed economic growth over a three decade period after gaining independence in 1957 was as a result of political, social, and economics factors. To begin with, the country suffered from prolonged series of military coups that destabilized economic activities (Hill 37). Additionally, the adoption of a socialist ideology by the successive governments killed capitalism as large portions of the countrys economy were run by the ineffective political regime. The country was also marred by rampant corruption leading to wastage of the national resources and embezzlement by a few. Finally, inflation and dependence on cash crops that were vulnerable to changes in the commodity prices in the international market further weakened the countrys economic growth.

Focusing on this situation, it is clear that economic growth is highly dependent the effectiveness of a countrys political and economic systems. Lack of political stability in Ghana weakened other economic and legal systems that enable business activities to thrive. More importantly, adoption of a socialist ideology by the governments that promoted collectiveness at the expense of individualism discouraged entrepreneurship. Additionally, nationalization of large portions of the countrys economy led to a command economy coupled with corruption due to lack of better oversight. A combination of these factors, therefore lead to slow economic growth.

What were the main changes that Jerry Rawlings made in the Ghanaian political and economic systems? What were the consequences of these changes? What are the lessons here?

After leading a military coup, Rawlings embarked on a vigorous drive to end corruption in the country. Although, he had initially pursued socialist policies, Rawlings later embraced democratic reforms as well as economic liberalization. He led the country into a democratic election in 1992 following the lifting of the ban on political parties (Hill 38). Under his leadership, media freedom was also initiated. Economically, Rawlings liberalized the economy by privatizing state-owned organizations and market based institutional reforms. As a result of these changes, the country was able to open its markets to foreign investors who helped turn the weak economy into a vibrant privately held economy. Political stability and market based reforms initiated by Rawlings became the anchor of the countrys economic growth in the latter decades.

The changes brought about by Jerry Rawlings brings to light the influence a political and economic system has on the economic growth of a country. More importantly, lessons on democracy as a core driver of economic growth are evident. In a democracy, political freedoms are guaranteed in a constitution in addition to safeguarding a free market economy (Barro 54). This environment translates to lowered business risks, hence stimulating both domestic and foreign investment within a country.

What external forces helped to persuade Rawlings to change political and economic practices in Ghana? Do you think he would have made the changes he did without these external forces?

Rawlings decision to implement political and economic changes in a free market and democratic nation were greatly attributed to pressures from the International Monetary Fund and western governments. IMF lending conditions require nations to pursue democracy as well as the stability of the other arms of the government. With the countrys economy having weakened following the prolonged coups, the need for funding to stimulate growth must have rendered Rawlings to implement changes. On the other hand, Rawlings may have been influenced by the wave of liberalization and democratic change that was sweeping across communist states in Eastern Europe that had fallen behind their capitalist counterparts.

Without external pressure, Rawlings would not have implemented the economic and political changes within the country. Since coming into power through a coup, Rawlings socialist ideologies had endeared him to the public as it helped combat the rampant corruption at the time. However, Rawlings policy of banning political parties was to enable him to maintain military rule thus being able to rule. A change into a democratic state and free market system would therefore not have been achieved as people perceived the socialist nation to be better as compared to the initial democratic state marred by corruption and coups.

If Ghana had discovered large oil reserves in the 1980s, instead of the 2000s, do you things might have played out differently? Why?

It is highly likely that things would have played out differently had large oil reserves been discovered in the 1980s. Discovery of oil triggers high hopes of economic gains, leading to power struggles. With the country experiencing political instabilities at the time, oil reserves would therefore have opened doors to civil wars as each group seeks control of the oil revenues. Additionally, the prevalent corruption that marred the country could also have led to embezzlement of the oil revenues common in similar states such as Nigeria (Feng 66).

What is the difference between the approach of Nigeria toward oil revenues and that of Ghana (the Nigerian experience is documented in the Country Focus in chapter 2, see page 53)? Which approach is in the best long-run interests of the country?

Ghanas approach towards oil revenues differs from the Nigerian approach due to the formers implementation of a liberalized economy as well as democratic governance that has provided oversight of the natural resources. Upon discovery of oil, Ghana ensured that its legislators were equipped with oil revenue laws that helped in designing laws to prevent siphoning of oil revenues through royalties as was the case in Nigeria (Hill 38). Additionally, Ghana government set aside a stabilization fund that would help hedge against drops in the oil prices in addition to a heritage fund to meet the countrys need when oil runs out.

Oil laws in Ghana therefore prevented embezzlement of the revenues, unlike in Nigeria, where measures to monitor and audit the countrys petroleum trust fund were not taken. Although both countries set up funds to channel excess oil revenues, Ghanas approach caters for the long run interests of the country as it sets aside funds to supplement the national government should oil prices fall as well as a heritage fund to be spent only when the oil reserves runs out.

What does Ghana need to do to remain on its current track of sustained economic growth?

Whereas Ghana has made significant political and economic strides in the past, sustaining economic growth rests on the ability to stem out corruption, control inflation as well as upholding democracy. Utilizing the national resources, especially oil revenues to improve the societys welfare and infrastructure upgrades will help stimulate and sustain the economic growth.

Works Cited

Barro, Robert J. Determinants of Economic Growth: A Cross-Country Empirical Study. Cambridge, Mass: MIT Press, 1997. Print.

Feng, Yi. Democracy, Governance, and Economic Performance: Theory and Evidence. Cambridge, Mass: MIT Press, 2003. Print.

Hill, Charles W. L. Global Business Today. Boston, MA: McGraw Hill/Irwin, 2006. Print.